Councils paying hundreds of millions to City fund managers for staff pension funds

Councils are paying out hundreds of millions of pounds in fees to City fund
managers to run gold plated pension funds for their staff, The Daily
Telegraph can disclose.

Local Government secretary Eric Pickles welcomed The Daily Telegraph's research and said it showed that councils should bring down the overall number of schemes to bring down the cost of the fees.Photo: HEATHCLIFF O'MALLEY FOR THE TELEGRAPH

In all £347million was paid out by the council pension funds to investment managers last year, up nearly 9 per cent on the £319million paid out in 2011.

The overall cost of the fees would be the equivalent of adding £15 to every council tax bill in England and Wales.

The increase is more than double the increase in the value of the council pension funds, which went up by nearly 4 per cent to £158.6billion, raising questions about whether the taxpayer is getting value for money.

Tonight, Local Government secretary Eric Pickles welcomed the research and said it showed that councils should bring down the overall number of schemes to bring down the cost of the fees.

The Daily Telegraph has repeatedly highlighted fees charged by fund managers on pension funds, which are far higher than in some other European countries.

The figures were obtained by analysis by The Daily Telegraph of the annual reports and accounts of 89 local pension funds in England and Wales. It shows big disparities between different council funds, with some cutting fees and others seeing big increases.

For example fees paid by Lewisham jumped by 85 per cent to £3million and by 41 per cent to £8.7million in Durham.

Pension fund charges fell in other parts of the country, 39 per cent in Cambridgeshire to £2.8million and down 37 per cent in Richmond-upon-Thames to £675,000

There was also a big disparity between funds, with Kent paying out nearly £4million in fees to fund managers more than Lancashire, despite having a smaller fund.

A breakdown shows taxpayers in some of the country's poorest boroughs supporting payments to some of the City’s biggest fund managers.

Somerset paid £2million to a group of fund managers including Jupiter Asset Management, Aviva Investors and JP Morgan.

Eric Pickles, the Local Government secretary, told The Daily Telegraph: “This research proves the real need for reform and true level of scope for savings.

“Under the last Administration, the cost of town hall pensions trebled, diverting funds from emptying bins, cleaning the streets and keeping council tax down.

“This is why this Government is taking action to reduce the massive and unsustainable cost of state sector pensions. We are asking for higher contributions from well-paid staff for their generous pensions.

“We are also actively looking at ways that administrative savings can be made from greater joint working and merging funds. For the first year in recent memory, the cost of town hall pensions to taxpayers is now falling.

“The Government also intends to put in place measures to reduce administrative costs for the current 89 differently administered pension funds.”

Earlier this month Local Government minister Brandon Lewis told pension fund managers that fees for managing council pension funds were too high.

He said: “We need to see the costs of administering funds and the fees paid to fund managers reduced. To achieve this, we need a better understanding of the factors driving these costs.

“In particular, I want to understand why the administration and fund management costs of similar fund authorities can vary so markedly.”

Alan MacDougall, from the Pension Investment Research Consultancy which advises investors on corporate governance, said: “In this period of austerity financing in the public sector, reducing fund manager fees must be a priority.”

Sir Steve Bullock, chairman of the Local Government Association’s Workforce Board, said: “Funds work very hard on behalf of taxpayers and pension holders to get a competitive deal on fees.

“Investment fees in the Local Government Pension Scheme average around 0.2 per cent of assets which compares favourably with the OECD average of 0.5 per cent.

“Councils are alert to the opportunities to lower costs further and are looking at ways to get even more competitive rates through greater cooperation between LGPS funds.

“The LGA and Department for Communities and Local Government will shortly start a joint piece of work to see how best that could happen.”